It's Still the Economy, Stupid

There are many lessons to be learned from the 2004 election, but one that the conservative pundits are sure to glean is that “It's not the economy, stupid.”

That's what that other George W. (i.e., Will, on ABC's This Week) said a few weeks before the election. “That's what we've learned. … the American economy is now so well run and so resilient and so productive, it's hard to dislodge it from wealth creation, and we've gone on I think to worry about other things.”

Oregon's Democratic governor, Ted Kulongoski, quoted in The New York Times, put it this way: “The Republicans are smarter. They've created … these social issues to get the public to stop looking at what's happening to them economically. What we once thought -- that people would vote in their economic self-interest -- is not true, and we Democrats haven't figured out how to deal with that."

This is no small matter. Is it possible that one of the areas in which the left has its greatest contribution to make will no longer be decisive in political races?

While the economy did play a smaller role in this election than in the past, these commentators are mistaking unique factors for enduring ones, and are thus extrapolating far beyond reality. Here are six reasons to question their assertions.

1) Concerns about economic conditions got crowded out by terrorism and war.

Regardless of where they started, George W. Bush and company quickly turned almost every discussion back to September 11 and Iraq. There was little on the economy at their convention, and, when such matters came up during the debates, the president was on particularly shaky ground. Remember when he called No Child Left Behind a jobs program (as did Dick Cheney)?

Will and others have a point when they argue that the economy mattered less this time, but that says nothing about the next time. It depends on the context and on the ability of the candidates to direct the debate toward their strongest issues.

2) And, in fact, the economy still broke through.

The much-referenced National Election Exit Poll (NEP) shows that 20 percent of those polled chose “economy/jobs” as the most important issue in the election, making it a close second after “moral values” (22 percent). Terrorism and Iraq scored 19 percent and 15 percent, respectively. Those who chose “economy/jobs” broke heavily for the Democrats, with 80 percent voting for John Kerry, versus 18 percent for George W. Bush. (The shares were exactly the opposite, interestingly, for “moral values”; while many have correctly pointed out the need to unite the two areas -- economy and values -- such numbers suggest that these camps among the electorate are pretty far apart.)

3) The economy improved over the last year: The Republicans successfully asked, “Are you better off than you were four months ago?”

When they did discuss the economy, the Republican strategy was to avoid looking back four years and to highlight a much shorter retrospective. While Democrats stressed the fact that Bush was likely to be the first president since Hoover to preside over net job losses, the other side pointed to close to two million jobs created since last fall. Essentially, they told the electorate: “Ignore the depth of the hole you're in, and focus on the fact that you're finally climbing out.”

4) The economy didn't have traction because people are doing better than we thought.

The Economic Policy Institute's analysis showed that once you take account of job and earnings losses, tax cuts, and health care costs, middle-income families are slightly worse off than they were in 2000. Same for mother-only families and younger families.

As usual, families whose economic conditions had worsened broke strongly for the Democrat. In fact, among the lowest-income families, Kerry did significantly better than Al Gore had in 2000. But there's a unique development here having to do with debt. More so than in past periods of weak wage and income growth, families have used debt to keep their consumption percolating (home equity cash-outs helped too). With interest rates on the rise, these elevated debt burdens will eventually bite, but this dynamic blunted the impact of income losses.

5) Bigger problems, fewer solutions.

For the economy to influence the election, voters have to believe that their candidate has the ideas and ability to go after the problems they face. True, some voters will blame the incumbent for whatever trends evolved on their watch, but that's probably not enough.

Yet this election failed to deliver a convincing set of ideas to deal with the big economic problems we currently face. The challenges invoked by globalization and technological change are ongoing if not escalating, yet beyond the standard response -- more education -- the candidates never offered a very persuasive response. Add offshoring, the longest jobless recovery on record, and the development of bubbles in key markets, and I wonder if the electorate just failed to hear ideas that won their votes on these issues. (I'd score Kerry's health care plan as a notable exception, and the NEP shows he beat Bush solidly on this issue.)

6) Was Kerry an ineffective messenger on economic issues?

There is some serious blaming the messenger going on among political analysts, but I thought he hit hard and pretty effectively on the economic problems facing the nation. He may not have been the best communicator on the issues, but, if he lost votes here, it was likely due more to a lack of convincing solutions (see #5) than for failing to get out the message. (According to the NEP, a larger share of the electorate trusted Bush rather than Kerry to handle the economy, but put me down as skeptic as to the reliability of this result.)

So what would it take for Will and others to be correct when they claim that the economy doesn't decide elections anymore? For that to hold, the reasons elaborated above would have to be permanent fixtures of our social and economic landscape. In fact, most are quite unique, with the first one -- war and terrorism -- at the top of the list (note the assumption that we don't wage perpetual warfare). Similarly, the extent to which debt and increased home equity drove consumption during this period of falling real incomes, the reversal of job losses last fall, and, of course, the messenger himself, were also unique.

On the other hand, the need for compelling solutions has been with us for years, and it's clear that you need more than good ideas. You have to explain them in a way that reaches and convinces those hurt by the economic challenges that confront us.

It's still the economy, stupid. Democrats just need to be smarter about it.

Jared Bernstein is a senior economist at the Economic Policy Institute in Washington, D.C.

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About the Author

Jared Bernstein is an economist and senior fellow at the Center on Budget and Policy Priorities. He was formerly chief economist to Vice President Joe Biden and a member of President Barack Obama’s economics team.